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Virgin sells loyalty slice as loss widens

Karlis Salna

Virgin Australia has sold off more than a third of its $960 million loyalty program as its looks to overcome another massive annual loss.

The airline will also look to cut costs by $1 billion over the next three years, after falling to an annual net loss of $355.6 million - more than a three-fold increase on the previous year's loss.

Chief executive John Borghetti said the sale of a 35 per cent stake in its frequent flyer program to private equity firm Affinity Equity Partners was expected to improve the airline's cash balance by $336 million.

The deal values the Velocity program at $960m, and leaves Virgin Australia with a majority stake, and majority representation on a new board which will manage the scheme.

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"This is an incredibly exciting growth opportunity for us," Mr Borghetti said, adding that the airline had plans to grow membership over the next three years to "way more" than seven million.

The sale of part of the Velocity scheme is in stark contrast to the strategy at rival Qantas, which also made a massive loss but decided to hold on to its $2.5 billion frequent flyer program, which has in excess of 10 million members.

And unlike Qantas chief Alan Joyce, who said his airline was on track to return to profit in 2015, Mr Borghetti refused to offer any guidance on Virgin's future profitability, due to the "economic environment" and because "aviation can be impacted by anything".

"The Virgin Australia Group will continue to be the protagonist in the Australian aviation market," he said.

"We will continue to set world class standards in customer experience and we are committed to delivering our strategy of sustainable profitability.

"It would be very brave of me to come up and say, `well, this is what I think we can do'. We've got a plan obviously, and we're confident we'll get it."

The past year had been the most difficult operating environment in the history of Australian aviation, Mr Borghetti said.

Virgin blamed its poor result on the capacity war with rival Qantas, weak consumer sentiment, continued economic uncertainty and the $51.6 million cost of the carbon tax.

Its loss included asset impairments of $56.9 million and restructuring costs of $117.3 million.

Excluding those items, Virgin's underlying loss before tax of $211.7 million was down from $93.8 million in the prior year.

The airline's cost saving program will focus on making more efficient use of fuel and its fleet, integrating New Zealand into its international business and cutting its long-haul overseas bases to two.

In positive news for the airline, its share of corporate and government markets for passengers had increased to more than 25 per cent, and Mr Borghetti said he was targeting 30 per cent by June 2017.